US Dollar Falls Against Australian Dollar as S&P 500 Tops 1200

The safe-haven US Dollar was the second-worst performing G10 currency on the day, losing traction against the Australian Dollar on heady gains in S&P 500 and other risky asset classes. The benchmark US equity index finished above 1,200 for the first time in 19 months on an impressively steady intraday rally. The S&P Volatility Index (VIX) likewise finished just barely above its lowest levels since 2007 and underlined buoyant financial market risk appetite/complacency. Major news outlets will likely attribute the impressive gains to a strong result in the morning’s Advance Retail Sales report, but a much simpler explanation would point to the S&P’s incredibly steady uptrend through the past two months of price action. 

 

Advance Retail Sales gained a noteworthy 1.6 percent in March, beating consensus forecasts of a 1.2 percent gain and boosting prospects for a genuine recovery in consensus demand. Perhaps more importantly, the Ex Autos and Gas index also beat forecasts at a 0.7 percent gain. There remain questions on the sustainability of such heady advances, but the recent improvement in US Nonfarm Payrolls may similarly suggest that the worst is over for the all-important US consumer. As a heavily services-oriented economy, consumer spending comprises a whopping 70 percent of the domestic economy, and it will be critical to watch conditions continue to improve for the sake of the broader economy. 

 

A simultaneous Consumer Price Index inflation release did comparatively little to alter outlook for domestic economic conditions, but a Question and Answer session by Dallas Fed President Richard Fisher arguably boosted outlook for domestic interest rates. Market News International reports that Fisher told a group of reporters that he favors a considerable shift on monetary policy. In order to further “normalize” conditions, the Dallas Fed petitioned the Federal Open Market Committee to raise the discount rate to 1.00 percent. He likewise joined the Kansas City Fed’s Thomas Hoenig in calling for a change in the FOMC’s line on leaving interest rates “low for an extended period of time.” The combination of Retail Sales and hawkish rhetoric had surprisingly little effect on short-term US Dollar interest rate instruments, but today may prove important if other Fed presidents join the calls for normalized monetary policy. 

 

Tomorrow’s US Initial Jobless Claims report will shed further light on the all-important domestic labor market, and any substantial surprises could be enough to force sympathetic moves out of the US Dollar and S&P 500. The following Net Long-Term Treasury International Capital report could likewise move markets on any especially beyond-forecast results, while later-morning Industrial Production and Philadelphia Fed Index releases could force modest short-term moves. 

 

Related: Discuss the US Dollar in the DailyFX Forum, EURUSD Exchange Rate Forecast

 

The Euro finished the day modestly higher against the downtrodden US Dollar, but further domestic worries meant that it underperformed other major currency counterparts. Greece was once again the focus as domestic bond yields skyrocketed above 7 percent for the first time since the announced EMU bailout details. Suggestions that Germans may need to vote on final bailout decisions certainly imperiled the chances of immediate action and investors fled for the hills. 

 

It seems that traders are now calling the Euro Zone’s bluff, leaving yields substantially above the proposed bailout rates and arguably forcing the EMU into action. How this all plays out may very well decide the short-term fate of the Euro, and it will be critical to monitor any and all developments out of Greece and the ongoing fiscal crisis. A virtually empty economic schedule leaves Greece and broader financial market risk sentiment as the only major market mover for the Euro currency. 

 

Related: German Finance Minister Fans Fears on Greek Bailout

 

 

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